Lifting a stay to pursue arbitration—Gardner v Lemma Europe Insurance Company Ltd (in liquidation)

In what circumstances would it be appropriate for a court to lift an automatic stay to allow a party to pursue arbitration? Charlotte Cooke, barrister at South Square, considers how the decision in Gardner v Lemma Europe Insurance Company informs our understanding of the court’s discretion.

Original news

Gardner v Lemma Europe Insurance Company Ltd (in liquidation) [2016] EWCA Civ 484, [2016] All ER (D) 175 (May)

The Court of Appeal, Civil Division, dismissed an appeal against a judge’s refusal to lift an automatic stay on proceedings being brought against the respondent, a company in liquidation. On the facts, the applicant had not established that he had a seriously arguable claim for an indemnity under his insurance policy with the respondent and, in the circumstances, the judge had not been wrong to refuse to exercise his discretion in favour of lifting the stay.

What practical lessons can those advising take away from this case?

The main practical lesson to be taken away from this case stems from the Court of Appeal’s view as to the circumstances in which it might be appropriate to lift the stay. Patten LJ, with whom Kitchin and Floyd LJJ agreed, expressed the view that, in the absence of any challenge to the competence of the courts of the other jurisdiction to determine the dispute in the liquidation, the need to preserve the estate for the benefit of creditors outweighs the contractual right of the insured in this case to have his claim determined in England.

What was the background to the hearing?

This was an appeal against the dismissal of an application seeking permission to lift the stay on proceedings in the UK against Lemma Europe Insurance Company Limited, a Gibraltar insurance company which is in liquidation.

The liquidation had been recognised in the UK by an order of Briggs J and the effect of that order had been to impose an automatic stay on proceedings against Lemma pursuant to Article 20 of the UNCITRAL Model Law, as set out in Schedule 1 to the Cross Border Insolvency Regulations 2006, SI 2006/1030.

Mr Gardner, whose claim for indemnity under a policy with Lemma had been rejected by the liquidator, sought an order lifting the stay in order that he could pursue arbitration proceedings in respect of his claim to be indemnified.

At first instance, applying the principles summarised in Fennell v Halliwells LLP [2014] EWHC 2744 (Ch), HHJ Cooke dismissed Mr Gardner’s application on the grounds that:

  • Mr Gardner could not show a genuinely arguable case, and
  • in any event, he had not discharged the burden of showing that it would be more appropriate or fair to conduct his claim before an arbitrator in this country rather than by appeal to the Gibraltar court under the Gibraltar insolvency legislation

Mr Gardner appealed.

What were the legal issues the Court of Appeal had to decide?

The issues for the Court of Appeal to decide were whether:

  • HHJ Cooke had erred in deciding that Mr Gardner could not show a genuinely arguable case, and
  • the decision reached by the judge as to the exercise of his discretion was one which he could not reasonably have reached

What were the main legal arguments put forward?

As to whether the HHJ Cooke erred in deciding that Mr Gardner could not show a genuinely arguable case, Mr Gardner accepted that in order to succeed he would need to show that:

  • a claim was made in the policy period, and
  • the disciplinary proceedings, in respect of the costs of which he was seeking an indemnity, arose out of that claim

The liquidator’s position was that the judge had been right in his conclusions in both regards—the correspondence properly construed did not constitute the making of a claim in the policy period, and in any event, even if it had done, the disciplinary proceedings did not arise out of that claim.

As to the judge’s exercise of the court’s discretion, it was argued on Mr Gardner’s behalf that an English solicitor should have a dispute relating to his indemnity cover determined in England, particularly having regard to the fact that both parties to the policy chose arbitration in England for that purpose. The liquidator’s position was that there was no basis on which the judge’s exercise of his discretion could be challenged.

What did the Court of Appeal decide, and why?

The Court of Appeal unanimously dismissed the appeal, holding that:

  • Mr Gardner could not show a genuinely arguable case as the correspondence properly construed did not constitute the making of a claim in the policy period, and in any event, even if it had done, the disciplinary proceedings did not arise out of that claim, and
  • there was no basis for disturbing the judge’s exercise of his discretion

To what extent is the judgment helpful in clarifying the law in this area?

The judgment is helpful in clarifying the law in this area in two respects. First, it provides guidance as to the proper construction of policy terms. Second, it illustrates the factors to be taken into account in determining whether the stay on proceedings against a company in liquidation should be lifted.

Interviewed by Diana Bentley.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

Further Reading

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Factors the court will take into account when deciding whether to lift or impose a liquidation stay

Recognition and other applications under the Cross-Border Insolvency Regulations

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First published on LexisPSL Restructuring and Insolvency

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